2019 Annual Member Meeting Summary
City of Austin Employees’ Retirement System
Annual Member Meeting Summary
July 16, 2019
On July 16, COAERS held its Annual Member Meeting at the Austin Central Library. Attendees included active and retired members, members of the Board of Trustees, and COAERS Staff.
This year’s program kicked off with a dialogue with COAERS’ Executive Director, Mr. Christopher Hanson, and Chief Investment Officer, Mr. David Veal, about the significant value offered by the Defined Benefit (DB) plan. They noted that over the last 20 years, DB plans have become far less common among American workers despite the fact that they represent an important source of retirement security. Mr. Hanson discussed research showing the economic impact DB plans had on older American households, as well as the economic impact that the COAERS DB plan has on the Central Texas economy. Mr. Veal highlighted the findings of a study conducted in 2012 by the Teacher Retirement System of Texas which found that a DB plan would provide 92% of its beneficiaries more income in retirement than a Defined Contribution (DC) plan at a substantially lower cost to both employees and the plan sponsor.
Mr. Hanson introduced a recently launched video produced by COAERS that further explains unique and valuable aspects of the retirement plan. Click here to view the video on the COAERS YouTube channel.
Next, Mr. Russell Nash, COAERS’ Chief Operations Officer, gave a demonstration of MemberDirect – the new, online account portal coming later this year, which will give members access to their retirement account information anywhere, anytime, from any device. Key features will include benefit and service purchase estimates, access to 1099-Rs and COAERS forms, and a secure message portal.
The first part of the event concluded with an informal meet-and-greet, where attendees mingled with representatives from COAERS departments, including Member Services, Finance, Investments, Technology, and Communications.
The second half of the event was composed of a regular Board meeting aimed at providing the membership an update on the state of the System. Mr. Hanson, Mr. Veal, and COAERS’ Actuary, Mr. Lewis Ward, presented on various aspects of the System. The meeting concluded with an audience Q&A. A summary of each presentation follows.
Mr. Hanson discussed Defined Benefit plan funding and sustainability. He expressed thanks to all members for their past or current service to Austin and said he considers his work an honor and a privilege. Mr. Hanson explained the mechanics behind Plan funding by walking through the four areas of the fundamental equation of pension financing and discussed how COAERS compares to other Texas plans in each area. Mr. Hanson talked about the importance of long-term plan sustainability in the context of the role of COAERS and existing State law. Mr. Hanson elaborated on actual sustainability problems at peer funds with respect to contributions, benefits, investments and expenses. He reported on the specific challenges that the COAERS DB plan faces in the coming years, such as future expected investment returns being lower, the growth of the unfunded liability, and demographic changes such as improved life expectancy. Mr. Hanson outlined what COAERS is doing to address these challenges, then answered questions from the audience. Click here to view the Defined Benefit and Funding presentation.
Mr. Veal provided an overview of the investment program and reviewed the roles of the recently expanded investment team. He highlighted the importance of investment returns to the long-term sustainability of the System, noting that 60-70% of benefits are funded by future investment returns. Mr. Veal reported that investment returns continue to decline around the world because of weak economic growth, an aging population, and historically-low interest rates. Even so, he noted that the COAERS fund remains performance-focused, well-diversified, professionally managed, highly principled, and cost-effective. He remarked that System funds are invested for the sole purpose of providing benefits to members and beneficiaries, noting that COAERS Staff are also members of the System who depend on it for their retirement.
Mr. Veal further explained that COAERS’ primary investment strategy —a well-diversified portfolio of high quality investments around the world — has historically performed quite well, consistently delivering 5-6% long-term returns over the risk-free rate. Even so, such strong performance has not been enough to overcome the drag from low interest rates, creating challenges in meeting the Fund’s 7.5% actuarial target rate of return. He noted that while most other pension plans are in the same situation, COAERS is in the top 39% of its peer funds for investment returns over the last 3 years and the top 28% over the last 10 years.
Mr. Veal reported on recent changes to the investment strategy including the adoption of the “Austin Model.” This empirical approach focuses on strong governance, high fiduciary standards, robust alignment, simplicity, and an unwavering commitment to being best-in-class. One key example of this approach is the recent creation of a Premier List process for manager selection. The Premier List is an ongoing roster of managers that have negotiated terms in principle, been subject to due diligence by Staff and Consultant, and that have been approved by the Board. This change allows for consistent process and results, better negotiating strength, and the ability to make timely changes. Mr. Veal stated that this approach has allowed for better performance while also lowering fees. For the first quarter of 2019, Fund expenses totaled only 28 basis points, down more than 40% from the peak earlier in the decade, producing more than $2 million in annual savings. Click here to view the Overview of COAERS Investments presentation slides.
Mr. Ward reported the results of the December 31, 2018, actuarial valuation. He reported that the funding period for the current valuation is 32 years, and that the funded ratio is 67.6%. He shared that the normal cost of the Plan is decreasing as more of the membership is comprised of Group B; however, the Plan’s unfunded actuarial accrued liability is expected to continue to grow until 2023 with full funding not projected until 2050. The growth in unfunded liabilities will make it difficult to maintain a funding period consistent with Board policy and the Pension Review Board’s standards, and it illustrates why a cost-of-living increase to retirees is not a viable consideration at this time. Mr. Ward also demonstrated how sensitive the Plan is to the volatility of investment returns and other risks to the System such as contribution deficiencies or a decrease in covered employees. Click here to view the Actuarial Valuation presentation slides.
Feel free to contact COAERS with any questions at 512-458-2551 or email@example.com.